1 NOT FOR PUBLICATION 2 3 UNITED STATES BANKRUPTCY COURT 4 EASTERN DISTRICT OF CALIFORNIA 5 6 In re: Case No. 18-14586-A-13 7 JAMES RICHARD JORGENSEN and LAURA

MAE JORGENSEN,

8 MEMORANDUM

9 WJH-1 Debtors. 10 11

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15 Argued and submitted on November 7, 2019 16 at Bakersfield, California 17 Honorable Fredrick E. Clement, Bankruptcy Judge Presiding 18

19 Appearances: H. Ty Kharazi and Nicholas E. 20 Aniotzbehere, Yarra Law Group for debtors James Richard Jorgensen and Laura Mae 21 Jorgensen; Michael Farley, Farley Law Firm, and Kurt F. Vote and Steven K. Vote, 22 Wanger Jones Helsley PC, for creditors Donald G. Aluisi and Karen Aluisi 23 24

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27 1 Pretrial orders may be vacated to prevent manifest injustice. An 2 accountant filed chapter 13 bankruptcy, proposing a 36-month plan that 3 pays creditors in full. Former clients oppose confirmation. After 4 eight months of discovery, the court scheduled trial. Creditors then 5 retained different counsel, who wants to vacate the trial date to 6 conduct additional discovery. Doing so will delay payments to 7 creditors until 18 months after the case was filed. Should the court 8 vacate its pretrial order? 9 I. FACTS 10 The Donald G. Aluisi and Karen Aluisi (“Aluisis”) are farmers and 11 commercial real estate owners. James Richard Jorgensen (“Jorgensen”) 12 was a certified public accountant, who served the Aluisis for more 13 than two decades. 14 After the Aluisis and Jorgensen parted ways, the Aluisis accused 15 Jorgenson of underreporting their tax basis on their state income tax 16 returns over a 14-year period and giving faulty tax advice with 17 respect to a tax-deferred real property exchange. The Aluisis contend 18 that these failures unnecessarily increased their income tax 19 liability. The Aluisis contend that Jorgensen’s actions give rise to 20 a claim of professional negligence and that Jorgensen concealed his 21 errors, further giving rise to a claim of fraudulent concealment. 22 Jorgensen denies these allegations but contends that if he did err, 23 that he did not conceal that error. 24 Prior to this case, the Alusis sued Jorgensen for professional 25 negligence in state court. 26 II. PROCEDURE 27 Before the state court action could be resolved, Jorgensen and 1 reveal modest assets, i.e., a home, two vehicles and the proceeds of 2 the sale of Jorgensen’s practice, as well as $21,000 of liquidated 3 undisputed unsecured debts. They also list a contingent, 4 unliquidated, and disputed debt to Aluisis in an “unknown” amount. 5 They have proposed, and sought confirmation of, a chapter 13 plan, 6 which provides for direct payment of their mortgage and for payment in 7 full of their allowed unsecured claims, i.e. $21,000. 8 Throughout the bankruptcy, the Aluisis have been represented by 9 David R. Jenkins (“Jenkins”). As pertinent here, the Aluisis have 10 objected to confirmation of Jorgensens’ chapter 13 plan. They do so 11 arguing lack of good faith based on Jorgensen’s pre-filing planning 12 and on misrepresentations in the Statement of Financial Affairs, 11 13 U.S.C. § 1325(a)(3),(7), and the infeasibility of a plan that pays 14 allowed unsecured claims in full since the Aluisis’ claim, once 15 liquidated, will have “seven figures.” 11 U.S.C. § 1325(a)(6); Hr’g. 16 on Mot. to Confirm Plan, September 17, 2019. 17 The plan confirmation hearing has been pending eight months and 18 was continued five times. During that time the Aluisis have 19 propounded discovery. They have complained that the debtors’ 20 discovery responses were incomplete, but they have not filed a motion 21 to compel further responses. At the fourth hearing on plan 22 confirmation, a frustrated chapter 13 trustee complained that the lack 23 of plan confirmation precluded distributions to other unsecured 24 creditors and described the Aluisis’ actions as “holding the rest of 25 the creditors hostage.” Hr’g. on Mot. to Confirm Plan, August 14, 26 2019. At the same hearing, Aluisis’ counsel Jenkins indicated that he 27 needed time to review some recently received discovery and, when asked 1 responded, “I doubt it.” Id. The court made the following order:

2 As more fully set forth on the record,

3 1. The motion will be continued to September 17, 2019, at 9:00 a.m. in Courtroom 11, Fifth Floor, 2500 Tulare Street, 4 Fresno, California, and the matter will be ready for resolution on the continued hearing date. 5

2. Not later than August 28, 2019, Mr. Jenkins may file 6 opposition.

7 3. Not later than September 11, 2019, Mr. Aniotzbehere 8 may file a response. Civil Minutes, August 14, 2019, ECF # 11 (emphasis added). 9 Both parties filed supplemental briefs and evidence. Apparently 10 unaware of the court’s admonition at the previous hearing, the 11 Aluisis’ supplemental opposition stated: 12

13 Here the Debtors did misrepresent significant facts in the preparation of their schedules and statement of financial 14 affairs. The Creditors are still in the midst of conducting discovery and, for their part, the Debtors have 15 not been as forthcoming as the Creditors believe they are required to be. . . 16 Supplemental Brief by Aluisis ¶ 3, August 28, 2019, ECF # 115 17 (emphasis added). 18 At the fifth hearing, believing the matter ready for resolution, 19 the court announced its intention to confirm the Jorgensens’ plan. In 20 response, the Aluisis argued that they had still not received some of 21 the documents requested, e.g., the buy-sell agreement for Jorgensen’s 22 accounting practice, as well as some bank statements and cancelled 23 checks, and requested an evidentiary hearing. The court and Jenkins 24 had the following exchange: 25 Court: Other than the question of these two documents (sic) 26 that haven’t been provided, is there any other discovery you want? 27 Jenkins: I’d have to check with my co-counsel who is 1 coordinating that with me. I could get back to you today. 2 Court: Well, unfortunately not. I’m going to be done with 3 court. I guess my question is whether I should just be setting an evidentiary hearing at this time? 4 Jenkins: I don’t see why not. 5 Court: Well, the why not is [that] there may be additional 6 discovery and that’s what I am trying to get you to commit yourself on. 7 Jenkins: If we set the evidentiary hearing out say about six 8 weeks that will give me time to meet and confer with Mr. Aniotzbehere and file a motion to compel if I need 9 to. 10 Hr’g. on Mot. to Confirm Plan, September 17, 2019. 11 Believing that the Aluisis had been given sufficient time to conduct 12 discovery, the court closed discovery and issued a pretrial order 13 scheduling an evidentiary hearing two months later. Pretrial Order 14 September 26, 2019, ECF # 123. 15 Three weeks later the Aluisis substituted the firm of Wanger 16 Jones Helsley PC (“the Wanger firm”) for Jenkins as their counsel of 17 record. 18 Less than one month before the evidentiary hearing, the Aluisis 19 filed this motion to vacate the pretrial order and reopen discovery to 20 depose the Jorgensens, as well as to compel them to produce further 21 documents. The Wanger firm opined that the remaining discovery could 22 be accomplished in 120 days and the evidentiary hearing re-scheduled 23 thereafter. The Wanger firm describes the discovery received as 24 “incomplete and inadequate” and the additional discovery requested as 25 “crucial.” Vote decl. ¶¶ 4, 6, October 24, 2019, ECF # 133. The 26 Aluisis’ former attorney, Jenkins, supported the motion, declaring 27 that he had “never been involved in a lawsuit as complicated” or with 1 the “potential to be [as] heavily litigated as this case.” Jenkins 2 decl. ¶ 16, October 24, 2019, ECF # 134. He attributes the delay in 3 seeking this discovery to “a long-term medical condition” that 4 “impacts his energy level” and “affects [his] ability to concentrate.” 5 Id. at ¶ 15. Jorgensens opposed the motion. 6 III. LAW 7 The pretrial order binds the parties and may only be modified “to 8 prevent manifest injustice.” Fed. R. Civ. P. 16(e), incorporated by 9 Fed. R. Bankr. P. 7016, 9014(c); United Phosphorus, Ltd. v. Midland 10 Fumigant, Inc., 205 F.3d 1219, 1236 (10th Cir. 2000). The party 11 seeking modification bears the burden of demonstrating that proceeding 12 without modification of the pretrial order will result in manifest 13 injustice to them. Byrd v. Guess, 137 F.3d 1126, 1132 (9th Cir. 1998) 14 (abrogated on other grounds, see Moreland v. Las Vegas Metropolitan 15 Police Dept., 159 F.3d 365, 372-373 (9th Cir. 1998)). In ruling on 16 such a motion, courts should consider:

17 (1) the degree of prejudice or surprise to the defendants if the order is modified; (2) the ability of the defendants 18 to cure any prejudice; (3) the impact of the modification on the orderly and efficient conduct of the case; and (4) 19 any degree of willfulness or bad faith on the part of the party seeking the modification. 20 Byrd, 205 F.3d at 1236, citing United States v. First Nat’l Bank 21 of Circle, 652 F.2d 882, 887 (9th Cir. 1981). 22

IV. DISCUSSION

23 A. Impairment 24 In this context, manifest injustice requires a risk that 25 Aluisis’ ability to protect their interests at trial will be 26 significantly impaired. No such risk exists here. The court has 27 scheduled a two-day evidentiary hearing. As a part of that 1 hearing the Aluisis will be afforded the opportunity to examine 2 the Jorgensens under oath and to subpoena records. While the 3 opportunity to depose the Jorgensens and review records in 4 advance of trial would assist the Aluisis in preparing for trial, 5 it does not follow that denial of that discovery, particularly 6 where they were given eight months prior to trial to do so, 7 constitutes manifest injustice. 8 B. Orderly and Efficient Conduct of the Chapter 13 Case 9 Granting this motion will significantly, and negatively, 10 impact the orderly and efficient conduct of this chapter 13 case. 11 Chapter 13 bankruptcy is a compromise imposed by law on debtors 12 and their creditors. In Chapter 13, the debtor proposes a plan 13 that repays creditors, in part or in whole, by making monthly 14 payments from post-petition wages to the trustee, who in turn 15 disburses those funds to creditors. 11 U.S.C. § 1322(a)(1). In 16 exchange, creditors must withhold collection efforts and any debt 17 not paid by the trustee will be forgiven at the conclusion of the 18 case. 11 U.S.C. §§ 362(a), 524, 1328(a). 19 But such a plan is not effective unless it is confirmed by 20 the court. 11 U.S.C. §§ 1323(b), 1327(a). The bankruptcy code 21 mandates an early decision, i.e., usually not later than three 22 months after the case is filed, to confirm, or deny confirmation 23 of, the debtors’ plan.1 11 U.S.C. § 1324(b); Fed. R. Bankr. P. 24 2003(a); but see In re Escarcega, 573 B.R. 219, 232 (9th Cir. BAP 25 2017). Central to the Chapter 13 process is an expeditious 26 1 Three months is calculated as follows: (1) the trustee must convene the 27 meeting of creditors not later than 50 days after the petition is filed, Fed. R. Bankr. P. 2003(a); and (2) the court must hold a confirmation hearing not 1 decision on confirmation of the plan. 2 Confirmation of the plan has advantages for both debtors 3 and creditors. Chapter 13 plans bind both the debtor and 4 creditors and, thus, provides certainty. 11 U.S.C. § 1327(a); 5 United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 276-77 6 (2010); In re Evans, 30 B.R. 530, 531 (9th Cir. BAP 2013) (res 7 judicata). Chapter 13 plans may be changed after confirmation 8 but only in limited circumstances. 11 U.S.C. § 1329(a); Anderson 9 v. Satterlee (In re Anderson), 21 F.3d 355, 358 (9th Cir. 1994) 10 (requiring a showing of substantial and unanticipated changed 11 circumstances)); contra, In re Mattson, 468 B.R. 361, 367-68 (9th 12 Cir. 2012). Confirmation is intended to stabilize the debtor- 13 creditor relationship. 14 Most importantly, at least from the standpoint of 15 creditors, confirmation allows the Chapter 13 trustee to disburse 16 monies received from debtors:

17 A payment [to the trustee] shall be retained by the trustee until confirmation or denial of confirmation. If a plan is 18 confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. . . 19 11 U.S.C. § 1326(a)(2) (emphasis added). 20 Granting the Aluisis’ motion will delay the confirmation 21 hearing and, assuming the plan is confirmed, payments to 22 unsecured creditors until 18 months after the case was filed.2 23 Even if confirmation of this plan is ultimately denied, the 24 debtors would need to propose another plan or risk dismissal or 25 26 2 That amount is calculated thusly: (1) this chapter 13 is presently 12 months 27 old; (2) creditors estimate another 120 days to conclude discovery; and (3) the court estimates that resetting the evidentiary hearing will take two 1 conversion of the case, which further delays resolution. Sucha 2 result is not consistent with the bankruptcy code’s mandate for 3 an expeditious decision on plan confirmation. 4 Cc. Motive 5 Finally, the movants have not sustained their burden of 6 proof as to proper motives in seeking to vacate the pretrial 7 order. This motion was not filed until the Aluisis substituted 8 the Wanger firm in place of Jenkins. The Wanger firm wishes to 9 undertake discovery probably not contemplated by Jenkins, i.e., 10 the depositions of the Jorgensens. Compare, Jenkins decl. q¢ 18 11 (“I intended to conduct [the Joregensens] depositions”), with 12 Jenkins statements at the fourth hearing, Hr’g. on Mot. to 13 Confirm Plan, August 14, 2019 (when asked if he wished further 14 discovery Jenkins responded, “I doubt it.”). This expansion of 15 the scope of discovery suggests that the Wanger firm would have 16 conducted the case differently than Jenkins did, had they been 17 counsel of record at the time. As a result, the movant has not 18 sustained their burden of proper motive. 19 Vv. CONCLUSION 20 For each of these reasons, the motion will be denied, and the 21 court will issue an order from chambers. 22 Dated: Nov 07, 2019 23 )

MSS.

Fredrick E. Clement 2 United States Bankruptcy Judge 26 27 28

1 Instructions to Clerk of Court

2 Service List - Not Part of Order/Judgment

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the parties below. The Clerk of Court will send the document 4 via the BNC or, if checked ____, via the U.S. mail.

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6 Debtor(s) Attorney for the Debtor(s) (if any)

7 Bankruptcy Trustee (if appointed in the case) Office of the U.S. Trustee 2500 Tulare St, Ste 1401 8 Fresno, CA 93721 9 All Creditors

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